U.S. Department of Labor Signals Return to Former Employee v. Independent Contractor Test

On February 26, 2026, the United States Department of Labor (“DOL”) announced that it is proposing a new rule to determine whether a worker is classified as an employee or an independent contractor (the “Proposed Rule”).  The Proposed Rule would rescind the 2024 totality-of-the-circumstances Biden-era rule and replace it with a rule similar to the one used in 2021.

The Proposed Rule will use an “economic reality” test to determine whether a worker is an independent contract or an employee. An economic reality test generally looks at a number of factors, including the following:

1. The nature and degree of control over the work.
2. The alleged contractor’s opportunities for profit and loss.
3. The extent to which the services rendered are an integral part of the principal’s business.
4. The permanency of the relationship.
5. The amount of the alleged contractor’s investment in facilities and equipment.
6. The amount of initiative, judgment, or foresight in open market competition with others required for the success of the claimed independent contractor.
7. The degree of independent business organization and operation.

Under the DOL’s Proposed Rule, the first two factors will be treated as “core factors” and likely seen as determinative as to whether a worker is classified an independent contractor or employee. The Proposed Rule, if finalized, would be used to determine whether individuals are independent contractors exempt from coverage under the federal Fair Labor Standards Act (FLSA), Family and Medical Leave Act (FMLA), and Migrant and Seasonal Agricultural Worker Protection Act (MSPA).  If challenged in court, the Proposed Rule may not be given deference, however, meaning the court may apply a test it deems more appropriate.  Several jurisdictions have developed bodies of case law identifying the factors courts should use to distinguish independent contractors from employees.

Employers should be aware that agencies such as the Internal Revenue Service and the National Labor Relations Board, which enforce different statutes, have their own tests for deciding whether a worker is an employee or an independent contractor.  Due to the ever-changing make-up of the various independent contractor tests, employers should consult with legal counsel and carefully review all factors and properly weigh the risks before determining whether a worker is an employee or independent contractor.

The 60-day comment period for the Proposed Rule closes at 11:59 p.m. ET on April 28, 2026. The DOL’s press release announcing the Proposed Rule can be found here.

Businesses with questions about whether a worker should be properly classified as an independent contractor or an employee under federal and/or state law should contact Nate Wolf, Nikole Canute, Scott Dwyer, Dominic Clolinger, or Kathryn Stegink.